Markets & Economy

Does the future of housing still lie in the suburbs?

A recent report by the Urban Land Institute suggests that locations outside the city are alive, well and even preferred
  • The latest report from the Urban Land Institute shows that America is still a largely suburban nation.
  • Suburbs can be broken down into five different types: established, high-end; stable, middle-income; economically-challenged; "greenfield" lifestyle; and "greenfield" value.
  • The data show that 75 percent of young adults aged 25 to 35 live in the suburbs.

Learn the New Luxury Playbook at Luxury Connect | October 18-19 at the Beverly Hills Hotel

Despite talk of the city becoming millennials‘ desired place to live, it’s far too early to count the suburbs out.

As the latest report from the Urban Land Institute (ULI) points out, the American suburb is alive and well — and where most Americans live, work and play. The report, Housing in the Evolving American Suburb, developed by RCLCO Real Estate Advisors for the ULI Terwilliger Center for Housing, shows that America is still a largely suburban nation.

The report examines suburbs in the 50 largest metros in the U.S. and finds that in these areas, the suburbs account for 79 percent of the population, 78 percent of the households and 32 percent of the land area.

And what about those millennials clustering in urban hubs? The data show that 75 percent of young adults aged 25 to 35 live in the ‘burbs.

Work and play

Suburbs aren’t just where we live; they are also where we work.

As of 2014, 67.5 percent of employment in the 50 largest metros was located in suburbs. Interestingly, between 2005 and 2010, employment in suburban areas remained stagnant but increased by 8.2 percent in urban areas.

Are you a rich broker, or a poor broker?
How to drive automation and profit from Robert Kiyosaki's 'Cashflow Quadrant‘ READ MORE

However, once the economy picked up steam again, between 2010 and 2014, jobs increased by 9 percentage points in suburbs versus 6 percentage points in urban areas.

Suburban residents overall have higher incomes, with a median household income of $71,000 in the suburbs compared to $49,200 in urban areas.

The suburbs are home to 85 percent of children aged 18 and younger, as well as 75 percent of young adults aged 25 to 34. American suburbs as a whole are racially and ethnically diverse, with 76 percent of the minority population living in the suburbs.

What about home values?

On average, the median home value in urban areas is $365,000 compared to $305,000 in suburban areas, but there are major variations by region. In the New York metro area, median home values are 28 percent higher in urban areas than the suburbs.

The opposite relationship is true for what the report calls the Legacy and Heartland metro areas, where suburban median home values are substantially higher than their urban counterparts.

In the Gateway, Sun Belt and New West metro areas, median home values are similar across city-suburb lines.

5 different types of suburbs

The ULI report breaks down the suburbs into five key types, which represent the different ways that they continue to grow and evolve.

Like cities, these areas aren’t static, changing in response to economic forces and demographic and mobility patterns. The top three types represent the bulk of the population, while the bottom two “Greenfield” categories are emerging areas and contain fewer multifamily units.

The desire for affordable, single-family homes is pushing many first-time homebuyers to these areas. Each major metropolitan area contains a different proportion of these five types.

The age of development and location of each plays a role in how these different segments contribute to the whole.

1. Established, high-end suburbs

Here, you’ll find high home values and established development patterns — but also community objection to new growth.

Many examples of these areas are found north and west of Washington, D.C., and in and around communities such as Bethesda, Maryland, and Arlington, Virginia.

2. Stable middle-income suburbs 

Similar to many areas of Orange County, California, these locations include a wide range of home values attainable to a broad array of households in the region. They are often located in close-in areas where most of the housing was built decades ago.

These are on the decline, as some are gentrifying into higher-end communities while others are deteriorating into economically challenged areas.

3. Economically-challenged suburbs

These locations have lower home values and have seen little to no population growth in recent years.

They may have aging infrastructure or underperforming city services that make them less attractive for new market-rate development.

Examples of these locations include many residential neighborhoods located along the urban fringe of former industrial or manufacturing cities such as Detroit, Michigan; and Providence, Rhode Island.

4. ‘Greenfield’ lifestyle suburbs

These locations are at or close to the suburban fringe, typically adjacent to established high-end suburbs, and are where the bulk of new community development is occurring.

These areas have mostly developed over the past 1 to 15 years and likely have some land still available for new development.

Examples include many areas south of Charlotte, North Carolina — such as Ballantyne, Weddington and Fort Mill, where a number of high-end, master-planned communities have recently delivered or are currently delivering.

5. ‘Greenfield’ value suburbs

These locations are at or close to the suburban fringe, often adjacent to stable or economically challenged areas. These suburbs have attracted new value-oriented communities that offer attractive home prices.

One trend we may see going forward is what the report terms “suburban gentrification.”

While some reports have said that millennials eschew cookie-cutter developments and prize more urban-style neighborhoods, some also may see it is an opportunity to put their stamp on the homes and also create the types of restaurants and retail they prefer nearby.

The distribution of single-family owner households in the United States is significantly older than the distribution of households overall. Almost one-half (48 percent) of households living in an owned, single-family home are older workers and retirees with no children, and almost one-half (49 percent) of households living in rented single-family homes are families.

In the future, some of the homes owned by older households may end up being rented to younger households that cannot afford or do not choose to buy.

What does this report mean for you in your business?

Trends aren’t necessarily reflections of our day-to-day life. Although there has been a lot of talk about millennials and their romance with urban areas, data shows this demographic is living in, and loving, the suburbs.

In the past, the question was suburb versus city, but now suburb and city are blurring. Suburbs are taking on the qualities of cities including multifamily housing and walkable neighborhoods.

The needs of a particular demographic aren’t homogenous. Some downsizing baby boomers will head to resort and retirement communities; others will head to cities. Not all millennials are looking for stress-free condominiums; many still want single-family homes.

Some millennials are willing to trade more living space for a longer commute, while others are willing to compromise on space for walkability and access to public transportation.

Underneath all of the data is a common need: affordability.

The report mentions that millennials (or members of other generations) will not be able to afford all of their desired attributes. For many households, the opportunity to walk to stores and restaurants will probably lose out to even higher priorities, such as simply being able to afford a suitable home.

Deidre Woollard is the co-founder of Lion & Orb, a real estate public relations company. Follow her on Twitter @Deidre.

Email Deidre Woollard.